Pranab Mukherjee cautions PSU banks on steep rise of bad loans

NEW DELHI: Finance Minister Pranab Mukherjee has cautioned three state-run banks, including the country's largest State Bank of India, on the steep rise of bad loans in their portfolio.

Although most of the 21 state-run banks are reeling under the stress of bad loans, called non-performing assets or NPAs in industry parlance, the proportion of such loans to total outstanding credit is the highest at SBI, Central Bank of India and UCO Bank.

"Mukherjee expressed concern over the rise in bad loans especially in these three banks," said a banker who attended the finance minister's meeting with chairmen of state-run banks and financial institutions in Delhi on Tuesday. "He also pointed out that all banks should strengthen their recovery management," the banker said.

While the average ratio of gross NPAs to gross advances of state-run banks was 3.10% at the end of March, it was 5.22% in case of SBI, 3.93% for Central Bank and 3.73% for UCO Bank.

The gross NPA to gross advance ratio of SBI and Central Bank has risen by more than 1% in the last one year. Last month, Mukherjee had warned state-run banks against their deteriorating asset quality, saying NPAs have grown at an "uncomfortable and unacceptable rate in the past couple of years".

"The Reserve Bank has recently advised selected banks to take necessary steps for appropriate NPA management," he had said at a function in Delhi.

A finance ministry official, however, downplayed Mukherjee's remarks, saying he expressed concern for all the banks and not just these three. The official said the finance minister was appraised that their asset quality of banks would deteriorate if the credit growth slows further.

Speaking to journalists later, Mukherjee said recovery of outstanding dues was unprecedented in the last quarter of 2011-12.

"Lenders have taken up the challenge to reduce bad loans," he said, adding that the momentum was to be kept as timely action would ensure the financial health of the banking sector.